Household enterprises can boost growth and reduce poverty

The ‘Household enterprises’ (HEs) - part of the informal sector - consist of self-employed workers in non-farm jobs, such as sole traders and street hawkers, who are often supported by family members to provide unpaid labour. Though unfashionable in policy circles, HEs form the backbone of the Rwandan economy in terms of job creation. They comprise the largest part of the private sector – employing over 700,000 people compared to small and medium enterprises (SMEs), which employ 200,000. HEs have generated an additional 427, 873 jobs between 2000 and 2006, compared to only 62,000 jobs with wages in the same period, from SMEs By any standards, these figures demonstrate that this part of the Rwandan economy can play a bigger role in boosting growth and reducing poverty. The research, conducted by local think tank, the Institute of Policy Analysis and Research (IPAR), shows that while many in the HEs sector still endure poverty, households that boast a self-employed trader are less likely to be poor than those that do not. Despite their importance to the economy, and the strong emphasis the Government places on entrepreneurship, job creation and poverty reduction, HEs barely feature on the policy radar. HEs need to be distinctively supported to help find work for the increasing numbers of young people entering the labour market. There is a lot of effort to support the private sector, but there seems to be little understanding of the size of HEs and how to support its needs. A dedicated body or institution responsible for co-coordinating activities to promote HEs should be set up or one of the existing institutions – Ministries inclusive - should take on the mandate to improve HEs. This will enable HEs grow into larger businesses – a potential they possess, but due to lack of guided direction, they have remained small. IPAR’s research shows that most HEs are started by individuals who are forced to use their own resources to get going and that the main motivation for starting one is the perceived lack of alternative employment. HEs provide an important source of work for women, especially in trade. Those in urban areas tend to perform better than rural HEs in part, thanks to the growing tourism trade. Most operate alone, or with unpaid family support. Around 70% are in trade – and most of the dealers are aged between 21-45, and their education qualifications are not beyond primary school. Those with higher education levels tend to run more profitable businesses, suggesting that education combined with policies to encourage HEs could create a band of entrepreneurs. If supported, HEs will help fill the missing pieces of the country’s economic development jigsaw. There is an urgent need to develop a coordinated strategy to raise their productivity and remove some of the constraints HEs face. By improving access to finance and offering basic business skills training, specifically geared to the needs of HEs, the sector will get the desired boost. HEs are also in need of adequate and strategic workspace for conducting the business. Many hawkers, for instance, complain that they are relocated to areas that are far from potential customers. HEs would benefit from being better organized, so that they can collectively represent their interests to the Government. Local taxes and charges also need to be set at a realistic level and the burden of paying them shared equally by all HEs. With the annual Kivu retreat just around the corner, reflection on the country’s progress will feature. This time round, the plight of HEs should be discussed. IPAR researchers contributed to this article. The author is the Executive Director at IPAR. info@ipar-rwanda.org, j.rwirahira@ipar-rwanda.org